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Assessing Fiscal Capacity at the Local Government Level in South Africa

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Author Info

  • Margaret Chitiga-Mabugu

    ()
    (Human Sciences Research Council, Pretoria, South Africa)

  • Nara Monkam

    ()
    (Department of Economics, University of Pretoria)

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    Abstract

    In recent years, local governments in South Africa have faced daunting challenges, notably significant service delivery backlogs, poor financial management, corruption, and poor capacity due to lack of skills. As a result, numerous municipalities are deemed to be in financial distress, and already questions have been raised concerning their capability to efficiently deliver on expected outcomes on a sustainable basis and to cope with economic shocks. In this context, South Africa has embarked upon a comprehensive review of the local government equitable share (LES) formula which constitutes the main unconditional grant that accrues to municipalities. The objective of this paper is to assess fiscal disparities across municipalities using a comprehensive approach to measuring fiscal capacity. In assessing the overall level of fiscal capacity, the paper uses the Representative Revenue System (RRS) and the Representative Expenditure System (RES) methodologies. To the best of our knowledge, such comprehensive measures of fiscal capacity at the municipal level have yet to be applied in the South African context. Additionally, the contribution of this paper lies mainly in that it provides a more systematic measure of municipal fiscal capacity that should be taken into account in the revision and improvement of the current LES formula to ensure that the LES funds are equitably distributed. Furthermore, an appropriate measure of fiscal capacities across municipalities in South Africa will provide the Municipal Demarcation Board with a tool to re-determine municipal boundaries based on objective and empirical evidence rather than political considerations.

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    File URL: http://web.up.ac.za/sitefiles/file/40/677/WP_2013_76.pdf
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    Bibliographic Info

    Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201376.

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    Length: 22 pages
    Date of creation: Nov 2013
    Date of revision:
    Handle: RePEc:pre:wpaper:201376

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    Keywords: Fiscal capacity; Revenue capacity; Expenditure need; Revenue effort; RRS; RES;

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    References

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    1. Robert Tannenwald & Nicholas Turner, 2004. "Interstate fiscal disparity in state fiscal year 1999," Public Policy Discussion Paper, Federal Reserve Bank of Boston 04-9, Federal Reserve Bank of Boston.
    2. Yesim Yilmaz & Sonya Hoo & Matthew Nagowski & Kim Rueben & Robert Tannenwald, 2006. "Measuring fiscal disparities across the U. S. states: a representative revenue system/representative expenditure system approach, fiscal year 2002," New England Public Policy Center Working Paper, Federal Reserve Bank of Boston 06-2, Federal Reserve Bank of Boston.
    3. M. Govinda Rao, 2003. "Intergovernmental finance in South Africa: Some observations," Working Papers, National Institute of Public Finance and Policy 03/1, National Institute of Public Finance and Policy.
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